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HomeEconomies & FinanceEconomies{Coal and oil} Companies’ 2021 {Achievement} Hints at Promising {Long term|Upcoming} for...

{Coal and oil} Companies’ 2021 {Achievement} Hints at Promising {Long term|Upcoming} for 2022 and Beyond

Industry displays resilience, adaptability as constraints on investment, emissions tighten

News Analysis

After weathering a brutal 2020, a banner 2021 showed {the way the} resilient Canadian {coal and oil} sector can flourish. {But 2021 brought obstacles that also,} {{in the years ahead} into 2022 and beyond,|{entering} 2022 and beyond forward,} {{turn to} becoming more entrenched {weighed against} 2020’s problems of oversupply and {insufficient} demand.|{turn to} becoming more entrenched {weighed against} 2020’s problems of and {insufficient} demand oversupply.}

“Amid less third-party investment, {capital discipline and operational excellence {will stay} a high priority {for several} {coal and oil} companies,|capital discipline and operational excellence {will stay} a high priority {for several} gas and oil companies,}” said Mitch Fane , Ernst & {Young Americas resources and energy leader and U.}S. {gas and oil leader,} in his 2022 outlook published on Dec. 27.

Pointing to banks {along with other} lenders closely reviewing their loan portfolios for how carbon-intensive {they’re}, Fane says that in this capital-intensive industry, {usage of} financing and judicious capital spending are {crucial to} success.

{In a single} instance {of the} trend, Laurentian Bank announced on Dec. {10 that {it could} halt direct financing for {coal and oil} or coal exploration,|10 that {it could} halt direct financing for gas and oil or coal exploration,} production, and development. Laurentian said it aims to differentiate itself from other Canadian banks and attract more green clients. 

Also, {Ottawa said {it could} phase out any subsidies {designed for} the exploration and production of fossil fuels by 2023.|Ottawa said {it could} phase out any subsidies {designed for} the production and exploration of fossil fuels by 2023.}

“{The overall game} has changed significantly for the sector,” said Martin Pelletier, managing director at Wellington-Altus Private Counsel, {within an} interview with BNN Bloomberg on Dec. 23.

Companies {will not} be rewarded for increasing production, so they’re {paying off} debt, buying back their stock, and raising dividends, he added.

“{The amount of} prudence that we’re witnessing and capital discipline that we’re witnessing among {these businesses}, … I haven’t seen it {within the last} {2 decades},” Pelletier said.

Fane said {another} few years for {the} {will undoubtedly be} defined by the “push and pull” {between your} reluctance of lenders {to purchase} {coal and oil} and the “dissonance among government, consumer, {and investor perceptions {concerning the} speed with which {coal and oil} should or {could be} replaced.|and investor perceptions {concerning the} speed with which gas and oil should or {could be} replaced.}”

This scenario bodes well for oil prices, as 2021 showed, given the expected ongoing underinvestment in the industry amid the growing ESG (environmental, social, and governance) trend and pressure to achieve a lower-carbon future faster.

Fane sees companies taking three different approaches regarding ESG-they either {make an effort to} excel at it {to create} it a competitive advantage, act out of {a feeling} of inevitability, or {await} it {to become} requirement and {keep on} as usual.

Rewarding Investors

{Despite having} {a large} bull’s-eye on its back, {the power} {element of} the Toronto {STOCK MARKET} (TSX) is on pace {to come back} well over {3 x} that of {the entire} index in 2021. {As the} TSX ’s year-to-date return {by} Dec. 24 was 20.5 percent, the capped energy sector’s return was 77 percent.

Global oil demand roared {back} 2021, prices surged, and companies were {within an} unusual situation {of experiencing} to figure out {how to approach} {a huge amount of} excess {cashflow} from operations. Efforts to curb fossil fuel consumption to mitigate climate change {didn’t} impact {the truth} that {the planet} needs energy that renewable sources {cannot} provide.

Related Coverage

{The price tag on} the U.S. benchmark for oil West Texas Intermediate sat at US$48.{52 a barrel at the final end of 2020.} It rose to nearly US$85 in October and is up nearly 60 percent to over US$76 on Dec. 29.

It’s been a good year to be invested in the energy sector.

“So much cash {to arrive} at current oil prices,” BMO managing director of {coal and oil} equity research Randy Ollenberger told BNN Bloomberg on Dec. 23.

“Companies {will have} {to obtain additional} creative {with regards to} how {they provide} that {cash return} to shareholders.”

{As much} companies double their dividends, {{in addition they} {plan to} achieve zero net debt in 2022,|they {plan to} achieve zero net debt in 2022 also,} Ollenberger added.

Reuters reported on Dec. 23 that crude consumption is {likely to} increase in 2022, {based on the} International Energy Agency. {{The total amount} {likely to} be consumed {will be} nearly {exactly like} 2019’s {usage of} 99.|{The total amount} {likely to} be consumed {will be the} same as 2019’s {usage of} 99 nearly.} {55 million barrels {each day}.|{each day} 55 million barrels.}

“Renewable penetration and electric vehicle adoption are growing, {but the {effect on} {coal and oil} demand remains imperceptible,|but the {effect on} gas and oil demand remains imperceptible,}” Fane said.

Come {quite a distance}

{By the end} of 2020, {the {coal and oil} sector was still reeling {from the} price war {between your} Saudis and the Russians.|the gas and oil sector was still reeling {from the} price war {between your} Saudis and the Russians.} In March 2020, Alberta premier Jason Kenney called what his province-which is heavily {influenced by} energy-was {going right through} a “triple whammy” {comprising} the pandemic’s onset, {an fragile provincial economy already,} {and an oil price crash {caused by} oversupply.|and an oil price crash oversupply {caused by}.}

Oil actually traded at {a poor} price on April 20, 2020, and {the power} sector’s 2020 return was a woeful -38 percent. 

Another hit in early 2021 came when U.S. President Joe Biden revoked the permit for the Keystone XL pipeline {when} he {experienced} office, but other pipelines {just like the} Trans Mountain Expansion and Coastal GasLink are {continue}

{The} has {had the opportunity} to roll with the punches and put itself {able to} thrive in a changing paradigm from 2020 to 2021.

Key to the success of the oilsands has been the prudent management of supply by {the business} of the Petroleum Exporting Countries (OPEC) {and its own} allies, including Russia. {Referred to as} OPEC+ , the alliance of oil-producing nations {comprising} 13 OPEC and 10 non-OPEC countries will meet on Jan. 4, 2022, {to choose} {if} to proceed with a 400,{000-barrels-per-day production {upsurge in} February,|in February 000-barrels-per-day production increase,} {in accordance with} a Dec. 24 Reuters report.  

Ollenberger said he’s in the camp {of these} who can {start to see the} possibility of {the price tag on} oil hitting US$100 in 2023. 

But first, {he could be} expecting softness in oil prices {to begin with} in 2022 {because of} Omicron; however, {in {the next} half of {the entire year} and in subsequent years,|of {the entire year} and in subsequent years in {the next} half,} he expects stronger prices.

Journalist

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Rahul Vaidyanath {is really a} journalist with The Epoch Times in Canada. His {regions of} expertise {are the} economy, financial markets, China, {and national security and defence.} {He’s got} worked for {the lender} of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, {NY}, and {LA}.

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